Softbank’s Vision Fund has been behind some of the most prominent tech names over the last few years. Led by Softbank head Masayoshi Son, the fund has invested in companies like Uber (UBER, Financial) and coworking giant WeWork, as well as a rake of other startups. With an arsenal of almost $100 billion, it has deployed its cash at astonishing speed, and SoftBank is now reportedly seeking to raise a Vision Fund mark 2. However, it appears that investors may be a little more apprehensive the second time around.
Investors are not game
The biggest backer of the original Vision Fund, the Saudi Arabian Public Investment Fund (PIF), which chipped in $45 billion back in 2017, has declared that it does not intend to make significant investments into the successor fund. If the Saudis are indeed scaling back their contributions, Son might have to resort to raising money from a larger number of smaller investors, with the attendant issues of having to please many different actors.
On the bright side, a more diverse source of capital would mean that no one shareholder would have veto power over the fund’s decision making. Earlier this year, Vision Fund announced that it was reducing a $16 billion investment in WeWork to just $2 billion, due to concerns by the Saudi and Abu Dhabi sovereign funds that back the fund over WeWork’s cash burn. While such prudence may well be warranted, it did undermine the narrative surrounding Son as a tech guru. Losing $130 million of his personal fortune buying bitcoin near its December 2017 top probably didn’t do Son any favors either.
What does this mean for private equity?
The Vision Fund has been a massive distorting force in the tech world over the last few years, so what has been the cause of this investor reticence? One simple explanation is that investor sentiment is much more risk-on today than it was in the halcyon days of 2018, when the fund was generating so much positive press. Just this week, we have seen 10-year Treasuries hit their lowest levels since September 2017, as investors search for safer havens to park their capital. In such an environment, throwing money at loss-making companies seems a little foolhardy.
Another explanation is that many of the big backers of the original Vision Fund no longer see the need in have an intermediary between themselves and the tech startups that they wish to invest in, particularly if the sheen is coming off Son’s investing genius. The Vision Fund’s lack of transparency and erratic cash flow situation may also scare off more conservative institutions like pension funds.
Summary
We may see another Vision Fund 2.0 yet. Softbank is reportedly working with Goldman Sachs (GS, Financial) to raise capital for the new venture. Softbank’s investment will rise from $28 billion to $40 billion this time around, potentially giving Son more decision-making power, but also perhaps signifying a decrease in confidence by the market.
Disclosure: The author owns no stocks mentioned.
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